Senior Housing Properties Trust (SNH)

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Senior Housing Properties Trust (SNH)

Citi Global Property CEO Conference

March 06, 2013 11:30 AM ET

Executives

David Hegarty - President and COO

Rick Doyle - Treasurer and CFO

Analysts

Presentation

Question-and-Answer Session

Unidentified Analyst

Good morning, everyone. Welcome to the final 11:30 session here in Citi’s 2013 Global Property CEO Conference. This session is for investing clients only and if media or other individuals are online, please disconnect now.

We are pleased to have with Senior Housing Properties, David Hegarty and Rick Doyle. I will turn over to you guys for opening remarks and back to me for Q&A.

David Hegarty

Great, thank you all for joining us and coming to this, thank you Citi for inviting us, it’s our first Citi Conference for us presenting at and so I am sure many of you do know our company, Senior Housing Properties Trust or SNH is the fourth largest health care REITs. We had about $5.3 billion of assets so that’s a quite big gap between first three and ourselves.

About two-thirds of our portfolio is the private pay senior living type properties such as assisted independent living and assisted living and Alzheimer care, and then another third of the portfolio is medical office buildings. We have the highest private pay percentage in our portfolio of all the healthcare REITs and that’s by design over the last 10 years or so. We have not bought a nursing home or government dependent facility in fact we have been selling down, so we are about 94% private pay which given the current events and the government and so on it’s a good place to be.

We have approximately 400 properties in our company with about 260 of them being single living properties and 125 medical office buildings, and our medical office buildings about two-thirds of them are what we considered on-campus or affiliated with the major hospital systems in the country. And our focus really is to invest and offer an attractive yield with the ability to grow our cash flow each year or maintaining a conservative payout ratio in a conservative balance sheet. We have increased dividend every year since 2001 and we hope and expect to continue to do that going forward while maintaining a mid-80% of FFO payout ratio and it’s for the introduction and I will turn back to Manny for any questions you have and start the ball rolling.

Unidentified Analyst

We will start out a question we have asked each management team today. What do you think is the most value creating opportunities that you have as the market is not attributing much value for?

David Hegarty

I think the one area of our portfolio that is appreciated for the growth potential is the portfolio that is comprised of RIDEA type assets; about 13% of our NOI cum properties, senior living properties, where we own the assets, lease it to a taxable RIET subsidiary and hire a third party manager, but we get to keep the bottom line of the operations to the property. And these assets were originally built or acquired by such names as Marriot, Hyatt, the Forum Group, Bell Partners and several others so they are very high quality assets designed to be, to accommodate the private pay senior out there.

Now one of the things that we competed against the larger three health care RIETs. We were successful in acquiring these assets. And so people questioned why, how could we compete against big three, given their cost of capital and so on. But one of the things that was different about these transactions was an existing management. It was not going to stay on and they were getting out of the business so a new operator, a new buyer had to bring in a new management team. So we were able to offer competitive pricing, surety of closure and deliver a management team at the same time as the capital.

So they didn't have to have a tri-party negotiation for the operations as well as the real estate. So we believe that. It gave us a little bit of an edge to win these transactions. And we believe that these properties themselves have significant upside potential, particularly they call them the V assets which was the highest product. It’s 75% independent living and 25% assisted living.

And so during the recession, the independent living felt the impact the most of this senior living space, so this portfolio was about 94% occupied priced for the recession. It had dropped down to a low of just under 84% occupancy. We bought them when they were a little over 85% occupancy and we have no reason to believe that they can't get back up to that low to mid 90% occupancy levels.

One of the things that but you have to appreciate though is that because there is a change in management that there is a transition period, so normally you have a quarter or two of transition just from that. But then also during the diligence we identify all the CapEx needs and we target that we want to fix everything right away upfront so we get the benefit as soon as possible down the road. So we are in that transition period right now 2013, we'll be pumping CapEx into the properties and really bringing them up to be extremely competitive, if not top of the market. There's one right here in Hollywood that we visited yesterday, it said 97% occupied and it's the highest it's ever been since it existed. So again I think that's not appreciated in the value of our portfolio.

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